UK insurers could be given greater flexibility to fund green energy projects in a post-Brexit overhaul of EU rules.

The Chancellor has launched a consultation that could dramatically change the Solvency II requirements and unlock up to £80bn for assets that include renewable energy infrastructure.

Solvency II was introduced by the EU in 2016 in the aftermath of the Lehman Brothers crisis and resulting global recession, it requires UK insurers to hold considerable sums on their balance sheets to avoid insolvency. However, with the world facing a different form of crisis in terms of energy security, the Chancellor is considering a more response approach to regulation. The EU itself as announced proposed changes to its own solvency regime.

Economic Secretary to the Treasury, John Glen, first announced plans to reform the EU-focused regulation at the Association of British Insurers annual dinner in February 2022.

The consultation sets out detail on the reforms, such as a reduction in the risk margin for long-term life insurers, increased flexibility to allow insurers to invest in long-term assets, such as infrastructure, and a “meaningful reduction” in the current reporting and administrative burden on firms, including doubling the thresholds for the size of insurers before the Solvency II regime applies.

The consultation will run until 21 July, with the government to then consider and publish a response to the consultation “in due course” and the Prudential Regulation Authority will also be publishing a consultation “at a later date”.

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